Get more out of your marketing and sales efforts with this powerful approach

You’ve already done some Lean activities. Cut waste, shortened lead-times and improved your operations in general. But Lean efforts haven’t helped with your sales. You need to find another way to boost your revenues. One simple but effective way to improve your marketing and sales success is to use Customer Profiling.

The main goal of Customer Profiling is to categorize the traits and characteristics of current customers, to identify the primary characteristics of good and bad customers. Incorporating Customer Profiling into strategic thinking can help revitalize a struggling business or lead an already successful enterprise into new and profitable territory. Customer Profiling will help you:

• Discover which customers are sales and profit contributors
• Identify customers who have profitable growth potential for the future
• Find out who are your unwanted (unprofitable) customers
• Categorize customers by more relevant and defined criteria rather than just general impressions
• Bring more focus to your marketing and sales efforts and use your resources more effectively

How To Do Customer Profiling: 4 basic steps

The path to customer profiling takes some thought and preparation but can be accomplished in a very logical manner. Here are the 4 basic steps to Customer Profiling:

1. Identify the characteristics you will use in the profile. These characteristics should cover a broad range of areas related to size, structure, buying habits, financial impact and the cost to serve the client. Keep in mind, these characteristics must help reveal profitability of the customer and also fit your business. Four questions are used to identify these characteristics:
          • What are the customers “Demographics”? Number of employees, NAICS code, firm type, location.
          • How do these customers affect us financially? Profitability, sales, AR days outstanding.
          • What is their potential to profitably grow and how do they make decisions? Market segment, new products, trends.
          • What are the barriers to gaining or losing sales? How are decisions made? Barriers may include commercial,
            technical or relationship reasons. Who is in jeopardy?
    
2. Begin building a basic customer profile based on the initial characteristics. Placing the customers on a spreadsheet with each characteristic is the simplest way to accomplish this. This is known as a Customer Profiling Worksheet and provides you the best way to group and broadly compare customers. Look for patterns in this information. From these patterns, you can start to build a profile of your best customers and possibly your worst customers, too.
    
3. Narrow down the first list of characteristics to the most essential traits that make a profitable customer. Generally, you should decide on about ten key characteristics from the first list using the basic profile that evolves from your Customer Profiling Worksheet. Prioritize these major characteristics as either primary or secondary factors. From this, you can build a Customer Analysis Matrix.
    
4. Evaluate each customer on these key characteristics. The matrix is a table that provides a structured scoring method to perform this final step. List your customers down the left side of the table and the key characteristics grouped by primary and secondary along the top.

Rate customers on each characteristic, with the highest score being the best. [Primary characteristics can potentially have higher value than secondary. For example, if dollars of revenue is a primary characteristic, it could be scored on a scale of 1 to 10. But warranty repair costs might be secondary and you would only score that from 1 to 5. Thus, primary characteristics can have more influence on the final score.]

Add up the scores for each customer to get their total score. The highest totals indicate your most valuable customers based on the chosen characteristics. Of course, the lowest totals may indicate less profitable customers.

These activities will bring focus to which specific customers and type of customers will contribute to your companies’ future. This powerful technique is a building block for your sales and profit growth plans, as well as strategic decisions.

A Simpler Evaluation: ABC Profiling

A company in Northeastern Wisconsin supplies components for OEM customers. The components are not unique, but the capabilities to modify and deliver them are. Unfortunately, 65% of their sales come from one single large customer (this is known as a leveraged situation). If this single customer’s business were lost, the effect would be devastating on the company’s profits and sales. Significant fluctuations in the customer’s purchases would also be painful to the company.

Growth from other customers was needed to eliminate the risk caused by relying too heavily on one customer. In this case, detailed information about the top 20 customers was gathered. Instead of using the Customer Analysis Matrix, this company used an even simpler method of categorizing customers by separating them into A, B and C groups:

“A” Customers

This is the group of customers that are currently contributing the highest sales and profits OR are customers that offer the most growth opportunity for profit and sales contribution. In this case, customers that provide significant business (contributed over 5% total revenues) and have further potential to grow were in this category. If customers have no growth potential and do not match the strategic goals of the company, they are not “A” customers.

“B” Customers

This group of customers are those with modest (or stable) growth potential and match the company’s business objectives. If the large customer (65%) is a business that is stable but offers no growth potential, it would appear here. Also in this group are New Potential Customers (targets) who match the business objectives but are not yet a significant part of the business.

“C” Customers

This group of customers are those with no growth (or shrinking) potential AND/OR do not match the company’s strategic objectives. This is a group of customers that the company may decide to “fire” depending on the level of support they require. If very little support is required to support their business, and they very infrequently buy, they certainly can remain a customer; but there should be very little focus on them.

Not every situation with ABC profiling is clear-cut especially with “B” customers. A company might miss an opportunity for long term growth with a customer because in the short-term they decided to save money by devoting fewer resources to serve that customer. “B” customers may actually be the best long-term opportunities that you have because they may be on the verge of significant growth but may not appear to be as successful right now.

Improve Your Marketing and Sales Success

Ideally, with all these methods, a crossfunctional team should be involved in this process so that all important factors are considered when making decisions about the value of customers. These methods should also be aligned with the strategic goals of the company and make sense for your business. You want to have agreement across the organization so that the results are accepted and understood by all.

In addition to giving your sales a shot in the arm, this concept is an absolutely critical part of Strategic Planning and Repositioning.

Customer Profiling is a key tool for business development. Customer Profiling delivers the high-octane fuel to power your sales and marketing engine for optimal performance.